Australian Sector Indices Q4 2013 Review

Markets Overview 

2013 saw the Australian equity market, as measured by the All Ordinaries Index, achieve a return of 19.7% with the December quarter only returning a modest 1.0%. Despite many global events impacting equity markets, particularly the threat of a U.S. Government shutdown and the Federal Reserve Bank’s decision to cut stimulus, both U.S. and European equity markets also performed strongly.

The U.S. market, as represented by the S&P 500 Index, ended the year at an all-time high with a 32.4% return. European equities, as represented by the Dow Jones Euro Stoxx 50 Index, performed strongly as well with a 22.7% return.

Emerging markets, however, underperformed their developed markets counterparts with relatively flat performance caused mainly by concerns over the future financing of trade deficits and signals that the U.S. economy is on the road to recovery. The USD appreciated against all major currencies including the AUD. The gold market has been conditioned to decline on any hints of tapering, so it is not surprising to see gold bullion down 3.8% in December to close the year at US$1,205.65 per ounce.

In the Australian market, there was a wide dispersion of returns between sectors with banks leading the pack achieving a return of 8.19% as measured by the Market Vectors Australia Banks Index.

Australian Sector Indices: Performance Comparison  - quarter ended 31 December 2013  

The remainder of this review looks at the recent performance across the Market Vectors Indices that the Market Vectors Australian Sector ETFs track and the best and worst performing securities that contributed to performance.

Banks the clear winner 

As shown in the chart below, the Market Vectors Australia Banks Index outperformed the other sector indices, achieving a total return of 8.19% for the quarter ended 31 December 2013. The Market Vectors Australia Junior Energy and Mining Index had the poorest performance among the group with a loss of -6.82% for the quarter. This Index also included the best and worst performing securities. Arrium Ltd (ARI) was the strongest contributor to performance achieving a return of 43.44% in contrast to Forge Group (FGE) significantly underperforming at -83.05%.

Top Performer: The Market Vectors Australia Banks Index  - quarter ended 31 December 2013  

Source: Bloomberg, Market Vectors Index Solutions

The above chart shows past performance of the Australian Sector Indices. Results are calculated to the last business day of the month and assume immediate reinvestment of distributions and do not reflect any management fees or brokerage expenses associated with an investment in the associated ETF. Past performance is not a reliable indicator of current or future performance which may be lower or higher. You cannot invest directly in an Index. Visit marketvectors-australia.com for up to date performance information. 

Market Vectors Australia Banks Index 

The Market Vectors Australia Banks Index returned 8.19% for the quarter ending 31 December 2013. All constituents performed positively over the quarter, however there was a wide range of almost 15% between the best and worst performer. The smaller banks significantly outperformed the big four, with Westpac (WBC) at the bottom of the table with a total return of 1.85% for the quarter.

During the quarter, Macquarie Group (MQG) offloaded its share of Sydney Airport securities (SYD) to MQG shareholders, partly in the form of a dividend.

Market Vectors Australia A-REITs Index 

The Market Vectors Australia A-REIT Index was flat, returning 0.42% for the quarter. Commonwealth Property Office Trust (CPA) was the best performer, achieving a return of 12.28% and was assisted by the takeover bids received from Dexus Property Group (DXS) and the GPT Group (GPT). Westfield Group (WDC) was the main drag on performance with a return of-8.36% for the quarter.

We expect the CPA takeover to be finalised this quarter which will result in a reduction of the number of securities in the Index from 17 to 16. During the 2nd quarter of 2014 we expect the reorganisation of WDC and WRT into separate local and global companies to be completed.

Market Vectors Australia Energy & Mining Index 

The Market Vectors Australia Energy & Mining Index returned -0.41% for the quarter and significantly outperformed the Market Vectors Junior Energy and Mining Index, which returned -6.82%. Arrium (ARI) was the top performer with a return of 43.44% and Perseus Mining (PRU) was the poorest performer, dropping by 55.45% over the quarter. Worley Parsons (WOR) with its average weighting of around 4% of the Index for the period was the largest detractor from performance. On 20 November 2013, the WOR share price dropped by 25.9% when it issued a trading update which included a downward revision of expected earnings for FY14. Heavy weights BHP and RIO returned 6.30% and 10.43% respectively for the quarter.

Market Vectors Australia Junior Energy & Mining Index 

The Market Vectors Australia Junior Energy & Mining Index was down -6.82% over the quarter. Forty five of the constituents had negative performance and 18 had positive performance. As expected from a small cap index, there was a wide dispersion of returns ranging from -83.05 % (FGE) to 43.44% (ARI). FGE securities were suspended for most of November 2013 due to a significant downgrade in profit guidance and subsequent funding discussions with its banker, ANZ.

The following constituent changes occurred during the quarter:

Important Notice 

This information is prepared in good faith by Market Vectors Investments Limited ABN 22 146 596 116 AFSL 416755 (‘MVIL’) as the Responsible Entity and issuer of units in the Market Vectors Investments Australian Sector ETFs (‘the ETFs’). This information is general in nature and does not take into account any individual’s objectives, financial situation or needs (‘circumstances’). Before making an investment decision in relation to the ETFs investors should read the current product disclosure statement (‘PDS’) and with the assistance of a financial adviser consider if the ETFs are appropriate for their circumstances. A copy of the PDS is available at marketvectors-australia.com or by calling the Registrar on 1300 MV ETFS (1300 68 3837). Investors can buy and sell units in the ETFs on the ASX via a stockbroker or financial adviser.

MVIL is a wholly owned subsidiary of Van Eck Associates Corporation based in New York (‘Van Eck Global’). The ETFs are subject to investment risk, including possible delays in repayment and loss of capital invested. Past performance is not a reliable indicator of future performance. Neither MVIL nor any other member of the Van Eck Global group guarantees the repayment of capital, the performance, or any particular rate of return from the ETFs.

The Indices are the exclusive property of Market Vectors Index Solutions GmbH (‘MVIS’), which has contracted with Solactive AG (‘Solactive’) to maintain and calculate the Indices. The ETFs are not sponsored, endorsed, sold or promoted by MVIS and MVIS makes no representation regarding the advisability of investing in the ETFs. Solactive uses its best efforts to ensure that the Indices are calculated correctly. Irrespective of its obligations towards MVIS, Solactive has no obligation to point out errors in the Indices to third parties.

This information is believed to be accurate at the time of compilation but is subject to change and MVIL does not represent or warrant the quality, accuracy, reliability, timeliness or completeness of the information. To the extent permitted by law, MVIL does not accept any liability (whether arising in contract, tort, negligence or otherwise) for any error or omission in the information or for any loss or damage (whether direct, indirect, consequential or otherwise) suffered by any recipient of the information, acting in reliance on it.